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Letter to FM: Put India on the manufacturing map for consumer electronics

08 July, 2014

Dear Mr Finance Minister,

Smartphone and tablet makers import products from reputed manufacturers in China. But we would like India to become a hub for manufacturing high-end mobile phones and tablets because we believe that we have the skills and expertise to build a world-class manufacturing hub in the country.

Complex SAD refund process

We started off our operations with importing components from China and assembling them in India. For every imported component, one has to pay custom duty and Special Additional Duty (SAD). Government charges SAD in order to save itself from losing out on excise duty in case the imported component is not used for manufacturing. However, once you have used the component for manufacturing, you can claim refund for SAD or it can be adjusted.

The process to claim refunds for SAD is an extremely complicated process and there were times when even specialist tax consultants couldn’t provide clarity on the same. Hence, we have stopped the assembling/packaging activity due to punishing policies and bad tariff structure. For every sale that we make, we have tax components like custom/excise duty plus VAT. This comes out to be two times the gross profit that we make between the final cost of device and our selling price.

Better environment for businesses

The functioning of the previous government was disappointing for both corporate India and tax payers. But with the new government, we are hopeful that it will take steps in the right direction to make India a manufacturing hub and even use the money collected from various direct and indirect taxes towards providing better environment for businesses to grow.

The government should consider keeping aside a certain amount of the total tax collected from a particular industry for creating a better infrastructure for that industry segment. However, a big share of taxes collected should definitely go towards building a better India that provides immense opportunity for growth to all.

Ease of starting out

Obtaining a license for starting a business is an extremely complicated and unfriendly process. For a company like ours, we have to obtain an import export license and manufacturing license apart from a whole lot of other documentation for starting a company. For someone who is starting out new in the industry, there is no handbook or any material available to know exactly how many licenses they need to obtain and an estimated time for the same. Hence, some of us don’t even know if we are going about it right. Even after obtaining the necessary approvals, policies have been worded in such a confusing manner that it provides officers a chance to catch us on loopholes.

There are two key issues. First, there is no single window clearance system. Secondly, there is no way to know what all approvals are required. For instance, we were fined once for not displaying our company name in Marathi. How are we to know that such a law exists? Shouldn’t there be a handbook given at the time of providing a company license or at the time of giving VAT license that helps entrepreneurs understand what all approvals are required?

To make matters worse, the legal and tax framework in its current form discourages manufacturing in India and tax rates vary significantly across different states creating hassles.

Incentivise the manufacturing sector

We would like to hear policy incentives for telecom sector manufacturing. The duty levied on components used for mobile phones and tablets should be near zero levels while duty levels should be at near 10 per cent on imported goods, which will encourage production in India. Besides, there should be a single window clearance system for any manufacturing unit in the country. Though the government has taken a step in the right direction by setting up a separate ministry for entrepreneurship, now it must function well through specific schemes and incentives.

There should also be special economic zones (SEZ) for telecom with special norms allowing for example SEZ status for single units, even if it’s not export oriented and meant for domestic market, since it does still replace import requirement and generates jobs in India.

Lastly, Mr FM, it is time to put India on the manufacturing map for consumer electronics and you must take radical steps to bring about this change through improved facilities for training skilled workers, simple tax regime and incentives for entrepreneurs.

(Aditya Agarwal is the co-founder and director of ICE Electronics. As told to Techcircle.in’s Nikita Peer)


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Letter to FM: Put India on the manufacturing map for consumer electronics

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